Chinese experts raise red flags about New Silk Road investments

Beijing-based news site Caixin Online has an interesting take on how Chinese companies and banks are queuing up to invest in the vast areas of Asia, Europe and Africa earmarked for development under China’s “one belt, one road” initiatives.

Caixin says local financial experts are urging these players and others to carefully weigh potential risks before committing cash and resources overseas for the huge project also known as the New Silk Road. However, their warnings have apparently done little to cool investor ardor for the initiative, which some estimates say could eventually generate over $ 1 trillion in business.

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China’s grand vision — which combines so-called New Silk Road Economic Belt and 21st Century Maritime Silk Road strategies — was first proposed by President Xi Jinping in 2013. It aims to bolster and forge economic and trade links between western China and Central Asia, as well as Southeast Asia toward Africa.

Sources familiar with ongoing preparations told Caixin that state banks and other financial institutions are busy amassing funding for various projects that will be launched under the New Silk Road.

Caixin says Chinese firms in a position to profit from “belt and road”-related infrastructure and industrial projects are jumping in as well. “Since late last year, according to a state-owned company executive who asked not to be named, many firms have been dusting off old project plans that were shelved years ago due to a lack of investor interest,” Caixin said.

Banks and companies are also seeking to capitalize on the financing advantages from the internationalization of the yuan to support their participation in the project.

“Experts have also urged Chinese companies to heed a variety of warning flags by carefully assessing the potential risks related to doing business abroad,” Caixin added. “A corporate banking department employee at Industrial and Commercial Bank of China (ICBC), who asked not to be named, said Chinese investors and their financiers must prepare to face complex issues stemming from diverse political, social and economic conditions in countries targeted by the initiatives.”

Investors should also be aware of the differences between China’s legal, environmental and technological standards and those in other countries, the ICBC source said.

Other experts are pointing to the potential for waste. They warn that short-sighted exuberance for the project could trigger overspending that leads to heavy debts for borrowers and lenders. This is similar to what followed the government’s 4 trillion yuan in stimulus spending after the 2008 financial crisis.